The Importance Of An Emergency Fund For Personal & For Business Use

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Rainy day funds. Photo: Flickr

Life is full of ‘what if?’ situations, so the best thing to do is to prepare for those situations! Nobody likes being caught unaware, panicking during a financial emergency with no back up plan to lift themselves out of debt. Well, that’s what an emergency fund is for, but they aren’t just for homeowner use. Instead, emergency funds are also incredibly fundamental for businesses, as should they find themselves being heavily sued or losing clients fast, paying employees alongside other expenses are going to be challenging.

While there are loans for bad credit direct lenders available on the market for personal use if you’re facing a financial emergency, establishing your own emergency fund is key for both personal and business purposes. Here’s why. For Personal Use. Pay Bills In Unexpected Emergencies: There’s a fine line between genuine emergencies and situations that aren’t emergencies. When establishing an emergency fund for personal use, it’s essential to distinguish between the two, otherwise when a true financial emergency arises, you’ll be left out of pocket. Critical home repairs, medical emergencies alongside unexpected tax bills all count as financial emergencies, and so with an emergency fund in place, you’ll be able to comfortably afford these bills without being out of pocket. New clothes and down payment on a home? Not so much of a financial emergency – you’ll just have to do some extra saving for those!

Prevents You From Relying On Credit Cards. The use of a credit card can be helpful when you really need it, but building a dependence on such a practice can lead to further debt. The more that amasses onto the credit card, the higher the interest rate becomes, which may cause even further issues down the line. Instead of building a reliance on your credit card, an emergency fund can help you to pay off unexpected bills if you are unable to use your regular funds. 

For Business Use. Issues Sometimes Need Immediate Attention Regardless of how organised you are within your business, when an emergency strikes and requires immediate action, there is no plan B, or even plan A for that matter. In business, there are many external factors entirely out of your control, and sometimes the only solution can be to dip into your emergency funding. If you’re an ecommerce business and you sell items through your website for example, you never know when you might experience hosting issues, preventing you from doing the usual amount of business. With an emergency fund, you’re able to cover those down times and pick yourself back up for the next month. Helps With Inconsistent Income. Owning a business never guarantees a steady, consistent income – it could go a million different ways. Some months will witness incredible progress and profits, whereas others will prove as a slow and laborious financial disaster.

If you happen to experience the latter, an emergency fund will allow you to budget with variable income. Therefore, when you do experience an exceptional month of business, you can dedicate some of that profit to your emergency fund, preparing you for the slower months. Many businesses experience success on a seasonal basis, making it even easier to prepare for those financially difficult periods.

An emergency fund is never something that should be overlooked. While it might feel difficult to dedicate money each month to a fund that you ‘might never use’, you can never be too careful.

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